The Balance Scorecard – Chadwick, Inc.
Relying on traditional financial measures, a single perspective, failed to provide a clear performance on the business performance of operations. The balanced scorecard gives managers a comprehensive view of the business by providing four perspectives of both external and internal operations: financial perspective, customer perspective, internal business perspective, and innovation and learning perspective. The Balance Scorecard allows executives to analyze and compare these internal and external operations to see if they have improved in an area at the expense of another. This strategy gives the company the opportunity to protect itself from posting suboptimal performance. The Balance Scorecard indicates financial measures that have already been taken, long term performance in order to achieve the corporations’ objectives: customer oriented, shortening response time, improving quality, emphasizing teamwork, reducing new product launch times, and managing for the long term.
Financial Perspective
The first financial objective of Norwalk is to increase its profitability. In order for Norwalk to achieve an increase in its profitability, the division should reach out more to key distributors to help them market their products to the public and develop a larger market share. Moreover, these key distributors will also help attract consumers to purchase their products, which will lead Norwalk to accomplish its expected sales. Therefore, this will not only help Norwalk in terms of increasing their profitability, but also to increase their growth. The second financial objective for Norwalk is to lower its unit costs to allow them to gain position in the market. Hence, Norwalk can calculate to lower its unit costs by the improvement percentage of gross margin and productivity. The last financial objective that Norwalk should consider should be to boost its 1
yields. Since the Norwalk Division of Chadwick is a manufacturing company that supplies ethical drugs for human and animal use, Norwalk’s expenses on research & development, waste and marketing influence the division to increase yields by reducing its costs and becoming more profitable. Lastly, the division can calculate its yields by using Return on Capital Employed. Customer Perspective
The first customer perspective goal that Norwalk must consider should be to improve its relationships with its customers. If Norwalk has good customer relationships and maintain that aspect, this will largely increase their distribution. In order to achieve this goal, Norwalk should carry out surveys for customers to rate their products and customer service. Hence, Norwalk should then refer back to reviews from its customers and also its distributors. The second customer perspective goal that the division should aim for should be to build trusted image for the eyes of its distributors. With Norwalk being ultimately dependable on its distributors since they are the key people who help them market and sell their products, Norwalk should build this trusted image to maintain relationships with distributors and appeal to customers.
To achieve this goal, Norwalk should continuously improve on what they should develop on based on the customer surveys. The results from customer surveys will benefit Norwalk to have a trusted image as well as to increase its market share and its numbers in sales. Lastly, Norwalk should focus on new products for its third goal as the amount of new product sales and its total sales will allow Norwalk to be respected by customers. Moreover, Norwalk should be able to see through its new product sales if they meet their market needs.
Internal Business Perspective
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The second part in the balanced scorecard is the internal perspective of a business, which defines what must a company accomplish internally to meet customer expectations. A core competency of Norwalk is that they have quite a few approved and patented drugs that could generate enormous revenues. Originally, Norwalk’s profitability in 1980s depended on one key drug that had been discovered in 1960s that differentiated them from competition. Therefore, a good internal business process goal should be the ability to introduce new products quickly to the market, which should be measured by the number of new compounds with the specific active properties desired created by the new bio-engineering techniques and reducing the average time in each stage of product development cycle.
A less expensive internal business goal would be to find alternative uses for the compounds that already exist and have been approved of. Doing so would still cost money to be approved for a separate usage, but the R&D would be significantly less, especially since it takes out the cost of development. Chadwick Inc.’s long-term success depends on the profit that distributors make by promoting and selling Norwalk’s products. So another goal for Norwalk’s internal business perspective should be to maintain long-term relationships with current distributors and gain new distribution lines. This could be measured by having managers look at the number of new/old distributors they have every year, figure out the ratio of new distributors to the total number of distributors, and analyze what they did to obtain or to lose a client.
Norwalk’s manufacturing processes are considered among the best in the industry because of its operations efficiency. They not only produce drugs, but are also capable of producing the small batches of new products that were required during the testing and evaluation process. Manufacturing excellence, therefore, should be another goal that Norwalk need to substation at an internal business perspective. Managers should check on the number new products released,
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number of products in development, number of products in testing, and number of products under review for government approval to measure and consistently check on manufacturing excellence.
Innovation & Learning Perspective
Intense global competition ends up requiring that companies make continual improvements to existing products and processes. The Innovation and Learning perspective focuses on companies’ ability to innovate, improve, and learn, which ties directly to the company’s value. Norwalk’s success in the past depended on a steady stream of attractive, popular products. However, recently generic manufacturers have flooded the market with similar products, resulting in lower sales by distributors. Norwalk’s long-term success is depended on the level of promotion by these distributors and their comments about future consumer needs. So we Norwalk’s innovation and learning perspective goals should focus on their technology leadership and new applications. The first is the ability to develop and introduce products that provide real customer benefits, which can be measured by the number of new compounds created with specific active properties that their scientists are trying to create with new bioengineering techniques. In addition, number of synthesized candidate compounds being tested for these properties can also be used to measure Norwalk’s operations efficiency. The R&D and engineers have to work together to find the best new compounds and technology to create better drugs efficiently. Meanwhile, new applications should measure by how well customers like new applications of existing compounds, and how well that innovation has helped company increase revenue margins. This can be measured by the suggestions from distributors about future consumer needs that directly tie to the new applications, and the percentage of sales on said new
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applications. Another suggestion would be to measure the penetration of new applications in the market versus existing applications with a ratio.
Balance Score Card-Norwalk
Financial Perspective
Revenue growth
Reduce unit cost
Increase yields
Customer Perspective
Key distributors, increase market share
Percentage of productivity
improvement; gross margin
Enhance customer
relationship
Percentage of R&D expense, marketing, waste and return on capital employed (ROCE)
Maintain excellent relations Customer retention, market with key distributors share, promotions and sales; suggestions from end customers
Internal Business Perspective
New products
Innovation & Learning Perspective
Distributor relationship
Annual number from new distributors versus already established distributors (percentage)
New product introduction
Cycle time-average time per Technology Leadership each stage including the moving ratio of each development cycle Number of new products in review fro approval, testing, development and released
Manufacturing excellence
Percentage of sales of new products Feedback from distributors and end customers; customer rankings through surveys
New applications
Number of new applications; percentage of sales from new applications; suggestions of new applications from end users and sales people Rate of ramp up to produce drugs; average time to product new products during evaluation stage
